By Kevin Buckland
TOKYO (Multibagger) - The dollar surged to a two-week peak against the euro on Monday as investors reassessed expectations for aggressive Federal Reserve policy easing. The focus has now shifted to a crucial U.S. jobs report coming later this week.
The dollar reached its strongest level against the yen since Aug. 21, fueled by an increase in long-term Treasury yields to their highest point since mid-August. This was driven by a stable U.S. inflation measure, reducing the urgency for the Fed to implement a 50 basis points rate cut on Sept. 18.
It climbed 0.27% to 146.60 yen, and last stood at 146.29.
Against major peers, the dollar index rose to 101.79 early in the Asian session, a level not seen since Aug. 20. The euro slipped to $1.0430, marking its lowest level since Aug. 19.
Currently, traders are pricing in a 33% chance of a 50-bp Fed rate cut this month, compared to a 67% probability of a quarter-point cut. This is a slight decrease from the previous week's expectation of a larger reduction.
Despite a U.S. public holiday on Monday potentially leading to a slow start for the dollar, the rest of the week is packed with macroeconomic data releases, culminating in Friday's non-farm payrolls report.
Economists anticipate 165,000 job additions in August, up from 114,000 in the previous month, with the unemployment rate expected to dip to 4.2%.
"If the U.S. economy adds 150,000 jobs or more and the unemployment rate falls to 4.2% or below, it would boost confidence in a soft landing for the economy," said IG analyst Tony Sycamore. This would solidify expectations for a 25-bp rate cut this month.
Sycamore also noted that recent dollar strength against the yen may not be sustained without a break above resistance at 152.00.
Looking ahead, the outlook for both the Fed and European Central Bank to ease monetary policy this month makes it challenging to take a strong stance on the euro, according to Sycamore.
With Treasury bonds not trading on Monday due to the U.S. holiday, the 10-year yield stood at 3.9110% after a 4.4-bp increase on Friday. Sterling remained flat at $1.3129, hovering near Friday's low of $1.31095, its weakest level since Aug. 23.
Analysis:
In summary, the dollar has strengthened against major currencies amid reduced expectations for a large Fed rate cut. The upcoming U.S. jobs report will be crucial in shaping market sentiment and guiding future Fed policy decisions. Traders are closely monitoring economic indicators to gauge the health of the U.S. economy and the potential impact on interest rates. This information is vital for investors and individuals alike, as it can influence currency values, borrowing costs, and overall market conditions. Stay informed and stay ahead in the ever-changing world of finance.